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Bankrupt Homebuilder Seeks Fast $15M Financing

Irvine-based homebuilder California Coastal Communities Inc. could run out of money in the next few weeks unless a $15 million financing deal gets prompt bankruptcy court approval.

The company’s Hearthside Homes Inc. division is developing the 356-home Brightwater project near the Bolsa Chica wetlands in Huntington Beach.

California Coastal has been under Chapter 11 protection for more than a year.

The rate of home sales at the 110-acre Brightwater project—the main source of funding for the company’s day-to-day operations—has suffered with the bankruptcy filing and the difficult housing market, officials said in a court filing.

About 100 homes at Brightwater have sold so far, with only about 20 of those coming this year.

That sluggish sales pace has the potential to affect the company’s ability to pay ongoing expenses, officials said.

California Coastal is down to about $1 million in cash, according to a recent court filing, and expects only two home sales to close by the end February.

That leaves the company “at serious risk of running out of cash in the next several weeks,” and in need of “an immediate infusion of working capital,” officials said.

California Coastal is seeking speedy court approval of the $15 million financing agreement, $5 million of which would be made available as soon as this month.

Creditors

The funding deal is part of the latest reorganization plan for the company.

It’s backed by three main creditors: Anchorage Capital Group LLC, Bank of America Corp. and Luxor Capital Group LP. The three own the bulk of California Coastal’s secured debt.

“We are pleased to have the support of our lenders in helping us exit bankruptcy, which has no doubt slowed our Brightwater sales,” said California Coastal Chief Executive Raymond Pacini in a statement. “Their willingness to provide the financing and assume equity ownership is an important vote of confidence.”

New York-based Anchorage has been involved in a number of other real estate company restructurings of late, including Valencia’s Newhall Land Development LLC, previously known as LandSource Communities Development LLC.

Luxor emerged as an owner of Freedom Communications Inc., the Irvine-based owner of the Orange County Register, after the company came out of bankruptcy protection in April.

The New York-based hedge fund operator had headed up another reorganization plan for California Coastal that failed to get confirmation earlier this year.

The unsuccessful plan included a $6.4 million break-up fee for Luxor if a deal wasn’t concluded by earlier this year.

The latest plan calls for Luxor to get a payment of about $1.5 million.

California Coastal is asking a bankruptcy court judge in Santa Ana to approve the latest financing deal a few months in advance of its anticipated emergence from bankruptcy.

The company, which has sold more than 2,300 homes since forming in 1994, reported owing $82 million on a line of credit and $100 million for another loan at the time of the bankruptcy filing.

Under the reworked reorganization plan, the $82 million loan would be converted to a second lien.

The $100 million loan would be converted to a $44 million third lien along with shares in the company.

Some $2 million to $3 million would be set aside for unsecured creditors under the plan.

Stockholders aren’t expected to get any money back, according to the company, which currently counts a market value of less than $1 million and is traded on the low-profile Pink Sheets exchange.

California Coastal was valued closer to $300 million in 2005, when the Brightwater development got approved by the California Coastal Commission.

Most of California Coastal’s secured creditors approve of the latest plan, according to the company.

The company said last week it hopes to emerge from bankruptcy by the end of February, giving it time to take advantage of the typically busy spring selling season.

Sluggish Sales

A quick uptick in sales at Brightwater isn’t being projected for California Coastal, even if it emerges from bankruptcy.

The funding deal includes minimum sales goals for the company, with 10 home sales expected in the first 18 months following its emergence from bankruptcy, 20 the following year and 30 in each of the next two years.

Projected long-term sales prices at Brightwater’s remaining homes haven’t been disclosed in court filings. Recent sales suggest sales below current advertised rates.

At its Trails home collection, prices are said to start at $810,450, according to the company’s website.

Court documents show the next home there scheduled to close is selling for $754,000.

Likewise, homes at the company’s Sands collection are listed starting at $899,000. The most recent sale there is expected to close at $762,000.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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